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Ford slashes debt by $9.9 billion with cash and equity deal

 
3 2,000 views Apr 6, 2009

The $9.9 billion represents a 28% reduction in Ford’s overall debt

The $9.9 billion represents a 28% reduction in Ford’s overall debt

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Just as other Detroit carmakers are clamoring for more federal loans, Ford has managed to reduce its debt by almost $10 billion. The news resulted in the stock price of Ford spiking by over 15% - a rare occurrence for U.S. carmakers considering the state of the market.

Ford's debt reduction amounted to $9.9 billion, a figure that was slightly less than a predicted $10.4 billion saving. Nevertheless, the Blue Oval described its debt reduction efforts as successful, claiming that the move will now allow the company to take "another step toward creating an exciting, viable enterprise".

Ford and its subsidiaries used a total of $2.44 billion in reducing the debt, around $200 million more than was originally anticipated. By convincing debt holders to take Ford equity in lieu of cash repayments, Ford's total debt has been decreased by over one-third. Additionally, its interest expenses have also been massively reduced, saving Ford around half-a-billion dollars every year.

Despite the rise in stock price and the reduction of debt, Ford is still expected to make "sizable losses" this year, reports Automotive News. Times may become especially tough at Ford if suppliers are forced to shut due to trouble at GM and Chrysler, and if this is the case then Ford may have to turn to the government for loans as well.

Ford's success in swapping its debt for stock has been an easier proposition for the Blue Oval when compared to companies such as Chrysler and GM. Ford's equity remains relatively steady, and its operations are in much better shape than its Detroit siblings, giving debt holders much greater confidence to swap their debt for equity in the future as well.



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Comments (3)

  1. ma_Chris avatar Chris Posted: 4/6/2009 9:46pm PDT

    you guys didnt explicitly mention that their debt still hangs around the 25b mark. still damned good news in this economy, given what market its coming from.

    lets just hope that those same creditors are willing to lend some of that money back if need be.. but in this climate, again, might be too much to ask for.

    it would be a shame for ford to have to go to the government after reducing this much debt.

    its nice to see that creditors are seeing enough value in ford to basically lose 8 billion in cash for an opportunity to buy large volumes of ford stock while its sitting low and pretty. i wonder what wall street analysts are saying about ford now.
     
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  2. ma_Vinzer avatar Vinzer Posted: 4/7/2009 1:11pm PDT

    Unusual that creditors and lenders have this much faith in Ford to swap debt for equity in the company. But I suppose at this point in time, anything goes...
     
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  3. By  free from debt Posted: 2/16/2010 6:49am PST

    Being able to reduce $9.9 billion from their loan which is exceptionally good as the majority of companies are struggling to repay their loans that the government has given them and this shows that a company as big as ford is too big to be destroyed. They are sorting out their internal structure to see where money can be saved and id half a billion can be saved a year this is a massive shake up for the big car company.
     
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